More problems with retail offers for our products

Kind of starting to freak me out

[dpd1]

I touched on this in the past, but it is something that I'm starting to be disturbed by...

There is one particular item we make that is an accessory to a device that is becoming fairly popular. So far, our accessory has been pretty much on top as far as what people want. We've been selling them all around the world. Up until now, very few people have started offering anything like it.

So for about the 4th time in the last 8 months or so, I have been approached by people who sell the main device, asking if I will wholesale our accessory to them to bundle with the main device. Problem is, virtually all of them have demanded about 40% discount on average. Our prices are very competitive overall... It's a tough pill to swallow when I think about how hard we work, then getting half the profit we get on direct sales. So you would think... Easy answer then... Just tell them you're not interested. Well, that's what I've politely done on each one. Problem is... All of them then came back and basically said; If I won't sell mine, then they would just start making one like ours. Call me crazy, but why do I feel like I'm being extorted? 'Sell me your product at half your profit, or I'll just make one like yours and steal your business.'

Then on top of that... I also had a major retailer admire a couple other products we offer, and when I said I preferred to sell direct, he hinted that he was going to find someone to make something like what we have then.

Another person who I sold one of our more complicated products to, recently had somebody else make one that basically looks just like ours, only they just added a couple things. He then proceeded to privately email many of our customers and also potential customers in our field, and pitched them on his version, while claiming that it performed better than ours... Specifically naming us and our product in the process. I found out because a friend he sent it to forwarded it to me.

I find it disturbing that all this has transpired in just 8 months or so. I mean, is this what it's like being successful? You just have all these people constantly trying to steal all your ideas? I really don't think there's much I can do legally. None of these items have any sort of earth changing, proprietary technology or anything. I basically just took old ideas and redeveloped them into new things. But I certainly didn't do what these people are doing... I didn't just look at other people's products and blatantly copy them. It took a lot of research and hard work on my part.

Anyway... I'm just venting I guess, but just curious if others go through this kind of thing a lot.

[akmac]

Can you leverage their existing production capabilities to produce your accessory for less, or are you being approached by retailers who don't produce the device?

Require that they purchase enough quantity of the product to make it worth your while. Quantity price breaks are your friend.

[digitalv]

I'm with akmac, if you can get them to commit to a certain quantity then you might be able to lower production cost by enough to compensate for the lower price. If they're unwilling to commit to a large quantity then they probably don't have the capital required to duplicate it either.

As for the business thing, yeah, that's pretty much how it goes. No matter what you do, someone will either duplicate it or one-up you. Look at netTALK vs. magicjack for a prime example. magicjack comes out in 2007 or 2008 and millions of people buy it, then nettalk comes out with a superior device and people jump over to that one. Next year magicjack or some other company will make something will come out that blows away nettalk's device. It's kind of an endless cycle.

[dpd1]

Wow... How depressing. I knew this would come up. I just didn't know there would be so many so fast. I guess it would be fine if I made a couple mil, then got out. But that is not the case. We need this biz to keep going.

I did talk with one guy today and he agreed to 15% off. So that's not too bad. I don't know, maybe these guys are just trying to play hardball. We haven't talked numbers yet, but I don't think it would be huge. I also get nervous when they just want a couple to start. I just picture them instantly taking it out of the box and taking it apart to see how it works.

But yes akmac, these are retailers that don't make anything. We do. That's why I found it odd that so many seem to threaten to make their own. I guess they must think it's easy or something.

[kaz]

Tell them you will make one for them - make it a different 'color' so it is 'theirs'. Require large quantities (figure out the math so it is worthwhile) and allow them to private label it, if they do this. Then continue selling yours as you have. They can sell one in blue, you can sell one in yellow, someone else can sell one in green. Tell them you will even put their logo/sticker on it. You get the idea, soon everyone is selling yours (with various branding) to the most number of people while you make them all.

[jecasc]

Alter the price for your product so you make even more money on direct sales and the margin is large enough for retail discounts.,

You should also take into account that you save money when retailers buy larger bulks and that if they promote your product sales might rise in total due to better customer awareness of your product.

In my opinion you have two possibility:

1. Don't sell to retailers and sell your products exclusively like you did in the past. Of course this could mean that the retailers get products like yours elsewhere.

2. Consider selling to retailers and adjust your marketing and pricing modells.

[HRoth]

Yeah, what jecasc says. I have this same problem, that my widget is priced too low. I don't really want to wholesale them anyhow, because IME other retailers are PIAs to sell to, but I could not give anyone half off on my widgets because I wouldn't make any money even if they bought 1000. That someone is willing to settle for 15% off your retail price is a demonstration of the fact that you are underpricing your widgets. I have had this exact same experience--b&ms buying some of my widgets at full retail and then reselling them at double or triple the price. Think I have the confidence to raise my prices? Heck no.

Re the stealing, people have stolen my original names for my widgets and claimed that they were names that were inherited from their ancestors from 3000 years ago (no, I am not making this up). They have stolen the text describing them, they have claimed to be making what I sell only of course better and most especially, more cheaply. Monkey see, monkey do. What have I done about it? Nothing. No one can make my widgets like I do. Mine are the best.

[dpd1]

Thanks for the advice guys... Some good ideas.

This guy that offered the 15% is in the US and I get a good vibe from him. Not so much with most of the others. So I'll try it out. He is apparently setting up systems for people using the main device, but also needs the accessories like I have. So I think he's happy to just get anything on it. He is probably charging for a 'system', so he knows what he's getting in the end.

I would love to raise my prices. But I know a lot of people would pass if I did. How many is the question. It would be nice if you could look in a crystal ball and see those things.

[digitalv]

On the subject of raising your price, this is where test marketing comes into play. Ever notice you'll see an infomercial and the price is $29.95, then a month later you see it for $19.95, then another month later it's two for $29.95, etc.?

When we shoot a new commercial we make a handful of test price points and air different commercials to different markets before going national to figure out the best price. Obviously you're going to sell more at the lower price, but what we aim to figure out in the test phases is at what point does the loss in the number of customers affect a loss in revenue.

If you sell 1,000 at $10, but only sell 800 at $13, although you had fewer sales you actually made more money.

The trade-off is different for every product, the only way to know it is to test it out.

[pdawg23]

dpd1,
i'm pretty sure a lot of these guys that tell you they will make their own really can't...
idk what your product is so can't be specific, but MOST products can't be just manufactured by some silly retailer or mid-wholesaler..
you've been doing this for a while and you are able to move large quantity..
if they were able to manufacture something original from scratch like that, they would've already done so
this is just a scare tactic, seeing if you will bite
unless it's walmart or target trying to move in on you, you really shouldn't worry
and yes, no matter what product it is, you do have to give discount to re-sellers
40% is outrageous, although in my business it's pretty reasonable..
idk what ur product is but i think there aren't that many products that are marked up so much like my field to give wholesalers a 40% discount..
if they're not directly affecting your sales (different state, country, market, etc) i think you should sell them your product..15% is pretty decent..again idk what ur profit margin is
and honestly if they could actually make their own why would they even try to buy from you on the first place?
"a barking dog never bites"

[topr8]

remember wholesale is a whole different game, soon you'll be giving 90 days credit and chasing up payments that haven't been made ...

if you are not soundly capitalised, then wholesaling can be the kiss of death

[dpd1]

Hopefully you're right, and most of the people making these claims are just yankin' me. But yes... I would prefer to avoid wholesale. I worked in another biz where we did stuff on invoice, and it was a huge pain in the a**. It's not like the old days... People really make you work to get paid. It almost got to the point where having to pester people to pay was the norm, not the exception. And that was a number of years ago, so I can imagine what it's like now.

[jecasc]

I know many wholesalers who have stopped giving any credit and only accept orders if you pay in advance. Guess times are like this...

You could also sell your invoices to a factoring service.

[p5gal5]

We do a bit of wholesale (but prefer not to or give special pricing). We have a similar scenario where we try to provide the average customer with an item at a reasonable price, resellers will sell our widgets for 50%-200% more.

Giving a 10-15%-off is still profitable, but obv. not as profitable as selling direct to endusers...our solution? No accounts outstanding. Maybe it has cost us some business, but have heard too many horror stories about:
1. Nonpayment
2. Dedicating staff (or own time) to collections
3. Cashflow issues
4. Losing large account(s) and having to lay-off 1/3rd of staff

A diverse customer base is important...b2b, b2c, wholesale...if you're in a position to resist, continue to resist. If not, haggle, require guaranteed minimums/incentives/0 days outstanding, etc.

Studies (testing Freud's pleasure-pain and reality principles) show that invidividuals will do more to deter pain than gain pleasure. Perhaps deter their pain (pricing) just enough that they do not seek to gain pleasure (own version of your widget).

[dpd1]

Thanks for the info guys.

Looking at the wholesale thing from the other side of the fence... I'm sometimes amazed at the difficulty that some companies seem to actually prefer putting themselves through. I often have to search for parts and materials for our products. I run into places all the time, where I say that I would be happy to buy x amount of something right now over the phone, or send a MO/check.. only to be told that they will only sell to me on invoice, after going through the credit check process. When you manufacture dozens of items, comprised of hundreds of parts... things change constantly. Vendors drive you nuts by constantly changing their parts. I think there's companies I've dealt with where I haven't been able to order the same thing two times in a row. You make something to a certain spec with certain parts, then a supplier doesn't carry a part anymore, and it drives you crazy. You can't redesign your item every other month, so you have to start looking for the part somewhere else. Plus you have price to consider. So with all that, I don't have time to go through some credit check hassle everyplace I go. You would think in these times, companies would love having somebody call and say they want to pay right then for something. But many companies almost act like that's a nuisance.

And the ones that really blow me away are the buyers who won't buy anything from you until you fill out a bunch of stuff, and they do a credit check on YOU. First time I got one of those, I just about fell off the chair... So you want to buy thousands of dollars of stuff from me... but you won't do it until you run a credit check on ME? Uh... OK.

[dpd1]

Update... The one guy who seemed legit, that I decided to trust as far as wholesaling to him... After going back and forth and working out all the details,he told me he was going to send a check for the first order... Never showed.

So there you go.

[HRoth]

Holy cats, I haven't run into the credit check thing yet, but I have dealt with wholesalers who do not want to take a credit card. They want you to mail a check. It's nuts.

[tangor]

Credit cards have chargeback terrors attached to them.

Cash on the barrel is the way to go these days. When cash goes out of style, then we're really screwed. :)

[dpd1]

Holy cats, I haven't run into the credit check thing yet, but I have dealt with wholesalers who do not want to take a credit card. They want you to mail a check. It's nuts.

Yeah, both times I got the credit check thing, it was with giant corps. And granted, it was gov stuff. But still... I find it ridiculous for people to ask the biz they're buying stuff from to do a credit check. I didn't do it and they bought the stuff anyway. lol The arrogance of some of these big corps now is crazy... I felt like saying... Hey, it's you big guys going belly up left and right... I'm fine here. I think maybe you've got the credit check thing backwards.

[luzagodom]

if they're not directly affecting your sales (different state, country, market, etc) i think you should sell them your product..15% is pretty decent..again idk what ur profit margin is
and honestly if they could actually make their own why would they even try to buy from you on the first place?
"a barking dog never bites"

[Digmen1]

That is bad news DPD1

I hope you can ride it out.

There are always people wanting to copy good ideas. It would be nice if they bought your products from you!

I have heard that people often take a new product into Walmart, the buyer says that's great, leave me a sample and get back to me in a few months. When the seller gets back to them in a few months the buyer says, yeah they are great we have a container arriving next week from China !

I don't know how guys that do that can sleep at night!

[dpd1]

There are people that justify everything with; "it's just business". Many people think that all you have to say are those words, and then you can just do whatever you want with a clear conscience.

I learned how things work early... When I first started, I wanted to sell a certain product that was a little too involved to make myself. I went to another maker and noticed they had a form to fill out that was for applying to be a retailer of their products. On the form it said to briefly describe how you would be marketing their products. So, I said that there was a specific niche I focus on, and I was going to custom adjust their product to fill that nice.

Well, some time went by and I never heard back from them. I moved on. A couple months later, I see somebody mention that this same company now has a specific model dedicated to the exact same application I had mentioned in my form. They had been in business for 30 years and never thought to come out with this item, so I seriously doubt them coming out with it a couple months after I mentioned it, was a coincidence. I sent a letter to their president and told him... his employees must really be desperate for ideas, if they have to resort to plundering the retailer request forms for new ideas... I told him that maybe he should hire me... Then he wouldn't have to rip off other people's ideas.

I never got a response of course. But it just shows you how low companies can be. After that, I haven't ever told anybody about a single one of my ideas, ever.